- The EUR/USD reached the measured move target (purple line) based on the November 11th two-bar breakout and reversed down to the moving average.
- January 2nd formed a wedge top at important resistance (Measured move target mentioned above). It led to a sell vacuum test of the moving average.
- I mentioned several times that the market was spending too much time away from the moving average, which would limit the number of bulls willing to buy and hold a position. This created a special situation where both bulls and bears would sell aggressively at any new high (especially at the measured move target), betting that the market would have to reach the moving average.
- The more extended the market spent away from the moving average, the more bulls and bears would see the market as overbought. Eventually, the only traders left were momentum bulls buying. As soon as those momentum bulls stopped buying, the market had to sell off to a price level where bulls would buy again, such as the moving average.
- Today’s selloff is a surprise bar. It is a big bear breakout bar, and although it is at support (moving average), it is strong enough so that the odds will favor a second leg down.
- Overall, the bears will probably get a small second leg down. Traders will pay close attention to see how today’s bar will close. Next, traders will see if the bears can get follow-through.
EUR/USD to Test Moving Average
